PEO Trends: Consolidation, New Markets

Florida is one of the strongest markets for PEOs, which still see a lot of potential for growth statewide.

| 2/1/2011

John Erik Savitsky, owner of 10-employee IT marketing firm Click And Bind, turned to a PEO after he grew tired of spending too much time on employment issues and preparing payroll. [Photo: Mark Wemple]

With only 10 employees, business owner John Erik Savitsky found he had limited clout negotiating insurance and retirement benefits for his staff. Even more, he was spending time worrying about employment law concerns and preparing payroll checks. He found the best way to get back to concentrating fully on growing his St. Petersburg IT marketing company, Click And Bind, was to hire a professional employer organization.

Savitsky had used a PEO, a business that provides human resources outsourcing services, at previous companies he had owned and had once turned to the PEO's stable of lawyers to avert a wrongful termination lawsuit. "It has saved me an awful lot of anxiety and money," he says.

Originally, PEOs were known as employee leasing companies. Today, they handle much more — employment taxes, workers' compensation, unemployment insurance, regulatory paperwork, and benefits packages that include 401(k) plans. The worksite employer maintains daily supervision of the employee while running the business.

"A PEO can help small- and medium-sized businesses achieve economies of scale that they may not be able to achieve on their own," says Robert Skrob, executive director of the Florida Association of Professional Employer Organizations.

PEOs are a formidable force in Florida. They employ about 900,000 and dole out $25 billion in payroll, making the industry one of the largest employers in the state, according to a 2009 report by the Florida Association of Professional Employer Organizations. On a national and state level, the industry has been a vocal presence in Tallahassee and Washington D.C., lobbying for small-business interests in the healthcare reform debate.

» The average client of a PEO
is a small business with about 19 employees.

Source: National Association of Professional Employer Organizations, Florida Association of Professional Employer Organizations

Unemployment data show businesses that use PEOs grow faster than those that don't, says John Slavic, president of Slavic401k.com in Boca Raton. "They truly help them increase productivity by removing non-core functions," says Slavic, an administrator of retirement savings plans for PEOs.

Florida was one of the first states to have a licensing statute, which provides some oversight in the PEO industry. During the recession, the industry has continued to grow. The industry, founded in the 1970s, now has 939 providers nationwide, 50 of them in Florida, says longtime industry consultant Carrie Aaron, president of PEO Network. "There's still a viable, untapped market of potential customers," Aaron says. She calls the industry fragmented because PEOs use a variety of models and service delivery methods. More recently, companies such as insurance agencies, human resource consulting firms, accounting firms and payroll service providers, are adding PEO divisions to their arsenal of services.

"Most businesses start to use a PEO service because the PEO can solve a specific problem," Aaron says. "They stay on because they discover there are many problems they can solve." Some of those concerns include benefits packages or employment law liability protection. Research shows the average PEO client longevity is eight to 12 years.